Reform Options for the
EU Own Resources System
Philipp Mohl
Centre for European Economic Research
(ZEW)
Conference: „The Future of the EU Budget“
Budapest, 30 May 2008
Assessing the Status quo
Development of EU Own Resources
100,000
GNP/GNI own resource
VAT own resource
80,000
traditional own resources
in million EUR
other payments
60,000
40,000
20,000
0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Incentives of Budgetary Players &
the Common Pool Problem
• Provision of European goods suffers from
asymmetric cost-benefit analysis
• Council members represent national electorates
• Enlargement and unanimity rule force the common
pool problem
• Small countries in particular face almost zero
marginal costs in financing pork barrels
Incentives of Budgetary Players &
the Common Pool Problem (contd.)
Country
Germany
France
Italy
UK
Spain
The Netherlands
Belgium
Sweden
Austria
Denmark
Greece
Finland
Portugal
Share in %
20.1
17.9
14.1
11.1
9.7
5.1
3.1
2.7
2.3
1.9
1.8
1.6
1.6
Country
Irland
Poland
Czech Republic
Hungary
Slovak Republic
Slovenia
Latvia
Lithuania
Luxembourg
Cyprus
Estonia
Malta
Share in %
1.5
2.4
1.0
0.8
0.4
0.3
0.2
0.2
0.2
0.1
0.1
0.0
The Driving Forces of Redistribution
• Expenditure side:
– Large redistributional effect
– Structural funds: progressive redistribution pattern
– Agricultural policy: arbitrary redistribution pattern
• Revenue side:
– Relative small redistributional effect
– Largest redistributional effects: UK‘s rebate
– The revenue side counteracts the expenditure
side redistribution to a small extent
Conclusion:
Strengths and Weaknesses of
the Status quo
+ Link between national budgets and the EU budget
+ Ceiling of the EU budget
+ Member States can decide on their own how to
finance the EU budget
+ Increasing relevance of GNI resources
– Common Pool Problem
– Long list of special provisions
ZEW Reform Proposal
ZEW Reform Proposal
• Complete phasing-out of the VAT resource
• Focus on the GNI resource
• Establishing a generalised but limited correction
mechanism (GLCM)
– Generalised, i.e. no single country would be priveleged
– Limited, i.e. not all allocatable expenditures are taking into
account in the correction
ZEW Reform Proposal (contd.)
Idea: Split the EU budget in two baskets:
• Basket 1:
– Includes policies whose distributive effects are either not
measurable or are politically accepted
– Financed by GNI resources
– Eurostat might calculate the level of contributions
ZEW Reform Proposal (contd.)
• Basket 2:
– Includes policies whose distributive effects are not regarded
as acceptable
– Financed by a generalised correction mechanism
– Option to phase out Basket 2 of the EU budget
Distribution pattern of various
EU taxes
VAT tax
70%
60%
50%
Deviation from GNI proportionality
40%
30%
20%
10%
0%
-10%
-20%
-30%
DE
FR
UK
IT
ES
NL
EL
PT
BE
SE
AT
DK
FI
IE
LU
PL
CZ
HU
SK
LT
LV
SL
EE
CY
MT
CO2 tax
500%
Deviation from GNI proportionality
400%
300%
200%
100%
0%
-100%
DE
FR
UK
IT
ES
NL
EL
PT
BE
SE
AT
DK
FI
IE
LU
PL
CZ
HU
SK
LT
LV
SL
EE
CY
MT
RO
BU